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What Gen Z wants from British fintech

As the digital age of financial services progresses, the UK fintech sector has reached a new and diverse audience that places varying demands on its financial services providers. Generation Z is a key target group currently entering or active in the workforce, having grown up in a more virtual and digitalized environment and expecting convenience, speed and consistency from their payment providers.

This is an extract from the recently published report ‘The Future of UK Fintech – 2015-2035’.

According to McKinsey, a large part of Generation Z experiences financial nihilism. Due to the current economic situation, geopolitical situation and the cost of living crisis, which lead to lower salaries and higher prices, almost 25% of Generation Z do not expect to retire. Therefore, the generation has a strong commitment to holding their banks to an ethical standard, managing their savings and having multiple bank accounts to best manage their money.

What do younger users demand from their payment providers?

The new generation of fintech consumers expect real-time answers, constant accessibility and hyper-personalized services from their financial services. Instant gratification and frictionless experiences are the future.

Zopa Bank Chief Customer Officer Clare Gambardella said: “These consumers have grown up with digital banking apps and instant payments as the norm and are looking beyond that to banks that truly simplify their experience managing their finances. Fintech consumers have also often experienced many changes in their economic circumstances in recent years. They expect a lot of value from their banking products and want to take their financial destiny into their own hands.”

It’s not shocking that 99% of Generation Z and 98% of Millennials use mobile banking apps for most of their financial needs. Challenger banks that are digitally oriented are popular among the younger crowd because they offer a range of features including investing, budgeting and payment tools within one app. Revolut, Starling and Monzo are particularly popular with Generation Z in the UK due to their user-friendly interfaces and easy access to features.

GW Solutions statistics from February 2024 show that Monzo has 4.2 million monthly active users in the UK, making it the seventh most popular mobile banking app and the most popular digital bank. Yet Monzo’s monthly users are declining year on year. Starling currently has 2.4 million monthly active users in the UK.

Both Starling and Monzo have a strong user base of 18-34 year olds, at 39% and 44% respectively. This compares to the UK’s most popular banking app, Halifax, which has only 24% of users within that age range. The research found that Barclays and Lloyds had the most balanced age distribution, with at least 20% of users in each age group.

Additionally, 30% of banking app users have an account with more than one bank, with the top 5 UK banks with the most overlap Chase UK (70%), first direct (59%), Monzo (54%), Starling (53%). %), and TSB (51%).

These numbers indicate that users are experimenting with multiple banks, and that younger mobile app users are more likely to maintain bank accounts at digital-only banks in addition to a bank account at a larger, more traditional bank.

Todd Pollak, Chief Revenue Officer at Marqeta, detailed the demands of the new generation: “Digital generations are unlikely to interact with physical cards and bank branches in the same way as previous generations, and will instead look for financial products who can communicate effectively with their digital, fast-paced lives.”

A variety of features within digital wallets and banking apps also appeal to younger, tech-savvy consumers, outlines Gurdeep Singh Kohli, member of SC Ventures. He said younger users are looking for embedded financial education in apps and incentives for spending, and that features like family financial management that tracks savings and spending are also untapped opportunities.

Gambardella pointed out that new consumers often have multiple bank accounts and credit cards, showing that customers are more likely to “shop around” for products to find the right fit. The younger, digitally savvy era of fintech consumers have higher expectations for their financial service providers to provide them with the services they need quickly, efficiently and seamlessly. As you can see in the chart below, the most popular digital banking apps also have the lowest average time before a payment notification appears.

Pollak concluded: “The purchasing power of younger generations, already strong, will only increase as they grow older and reach the highest income years. Generation Z has higher expectations of companies they do business with, and is more likely to turn to another brand due to issues with quality, perceived lack of authenticity and social responsibility. This has also had an impact on the financial market, with only 27% of GenZ respondents reporting they are very satisfied with their credit card and 58% saying they are likely to apply for a new credit card in the next 12 months. As Gen Z shifts the narrative of brand loyalty, companies must rethink their traditional loyalty approach, which is largely based on outdated, long-standing credit card programs, to attract and retain Gen Z customers.”

Source: Built from Mars

Generation Z encourages sustainable payments

Sustainability has become a tenet of the financial services world in recent years, thanks in part to younger users’ commitment to partnering with companies that uphold sustainable values ​​and pursue greener initiatives.

64% of Generation Z would switch banks if the current account holder did not adhere to ethical and environmental sustainability standards. Generation Z has shown that they have the willpower to only work with companies whose values ​​align with their own, and they have proven this time and time again through the use of environmentally conscious payment services.

Emma Kisby, CEO of Cogo, EMEA, stated that Gen Z and millennials make up a third of their engaged users of carbon footprint technology, indicating how much the younger generation is invested in upholding sustainable principles and looking for responsible and trustworthy institutions to put their money to insert. More and more banks and fintech are seeing younger generations responding enthusiastically to corporate accountability and transparency, while looking to invest in companies that reflect their own values.

Kisby said: “It is well known that young people are concerned about climate change and its impacts, so it makes sense for fintech to address these concerns. From our own research at Cogo, we’ve seen that 71% of people under 25 want their banks to support their sustainability journey and 71% of customers want their banks to offer rewards and incentives to encourage more sustainable purchasing decisions. People under the age of 25 (79%) are especially in favor of this incentive.”

New forms of interaction with financial services

After living through the pandemic and many experiencing financial upheavals and debt, Generation Z is more conscious when it comes to saving, avoiding debt and managing credit. However, Investopedia reports that Generation Z is concerned about managing risk and accumulating mortgage and personal loan debt.

Pollak stated that Generation Z is engaging with merchants in new ways, using new services like BNPL to avoid debt and looking for flexible credit options. Pollak added that Generation Z is actively interested in their financial independence and wants to learn more about personal finance on TikTok and YouTube. As you can see in the chart below, Generation Z learns the most about persona finance from online videos than Millennials and Generation X.

Source: Investopedia

‘Finfluencers’ are becoming increasingly common online on YouTube and FinTok (Finance TikTok), which post personal finance content and advice to viewers. From investing tips to explaining the stock market and crypto, FinTok makers are gaining traction among young investors looking to become fiscally responsible.

Mark Horwood-James, director of personal finance technology at Moneyhub, commented on Gen Z’s use of social media for financial tips: “The research has shown that social media is one of the most popular sources for financial tips and advice among that group. The challenge is that this ‘advice’ is unregulated, making it difficult for consumers to determine whether the information is accurate or unbiased. Companies must embrace innovation and technology and deliver financial content to younger generations in ways that are convenient and useful to them, across different media and formats.”

Personal finance tools that can be used in apps like Starling track users’ spending habits and can act as a financial advisor, appealing to the younger generation who are hungry for data on their spending habits to manage their money.

McKinsey reported that more than half of Generation Z have some form of investment, and that Generation Z holds the largest share of fintech users.

Pollak noted, “Contrary to popular belief, Generation Z exhibits a high degree of fiscal responsibility and an aversion to debt, and as a result their relationship with credit is constantly evolving.”

Gen Z will revolutionize financial services

In recent years, the financial services and banking industry has experienced a golden age of innovation and dramatically moved into the digital economy.

Currently, Generation Z is changing the financial sector for the better, demanding companies are taking responsibility for their environmental impact and reducing their carbon emissions, and are looking for banks that reflect their ethical values. Furthermore, younger users demand hyper-personalization and speed from their payment providers, expecting seamless and easy-to-use interfaces.

Gen Z isn’t afraid to jump between accounts, moving between incumbents, fintechs and challenger banks to get what they need. As Gen Z continues to grow and become more dominant in their financial habits, their demands will continue to shape industry trends.